Tech Upgrades Key to New Revenue Recognition Rule Transition

Good news: The newly converged revenue recognition guidelines offer an excellent opportunity for companies to employ and benefit from the much improved technology advances for financial systems.

Bad news: Software solutions are as good as the standard upon which they’re based and as anyone who has followed the twists and turns of FASB updates knows, that’s an ever evolving foundation upon which to build.

Important news: Companies can’t afford to sit around and wait for a perfected technology-based solution and expect a successful transition to the new guidelines.

As stated in a recent Compliance Week article which took on all those topics, the quandary when it comes to software solutions and the new guidance is the veritable cart vs. horse: software vendors are eager to update their products in principle, but hesitate to embrace that move fully until FASB issues more follow-up guidance, which is expected later this year.

“Vendors are trying to align with all the different changes in the standards,” said Don Sobczak, managing director at KPMG. “They’re all at a point where they’ve built some functionality that they know isn’t changing.”

The article notes the significance of technological advances as it relates to the new standard. Apparently, concerns over accounting technology being up to the task played a role in the governing board’s recent proposal of a one-year delay in the standard’s 2017 effective date.

“It’s fairly obvious there are no broad-based computerized solutions that are available right now,” said FASB member Larry Smith during the group’s discussion which preceded the proposed delay in April. “And we don’t expect vendors will complete or even start to complete their packages until we finalize the standard sometime later this year.”

It’s not a secret that providers of technology-based revenue solutions are requiring additional time to bring products to market and KPMG’s Steve Thompson knows where much of the holdup lies.

“The standard is continuing to change,” said Thompson, a partner with the accounting agency, who has been keyed in to the developments of the blockbuster alterations to the accounting rules.

Currently, FASB has a proposal issued to clarify guidance surrounding licensing arrangements and identifying performance obligations, with another pending on issues including recognizing revenue gross or net of amounts paid to others in a transaction.

“It’s not as if the standard came out a year ago and has just stayed the same the whole time,” Thompson said.

Revenue recognition solutions in support of the new guidance, such as RevPro, require flexibility and direct impact from their customers on accounting policies and judgments necessary to comply with the new standard.

Thompson said when he hears of solutions ready now, that means the tools are flexible. “Companies build their own rules, effectively,” he said. Which brings us back to a key point often overlooked in this whole process: the wait-and-see mindset of many companies amid the unsettled nature of the new standard.

“I’m concerned some companies are dragging their feet,” said Doug Reynolds, a partner with global advisory firm, Grant Thornton. “Some don’t want to get started before they know they have a technology solution. I’m afraid some are delaying maybe a little too much.”

As Lorraine Malonza, director at Financial Executives International, said, based on her field observations, developments in technology play a role, but often not the primary one.

“Some companies haven’t even gotten to the point where they understand how the technology will impact them,” she said.

So let the drumbeat continue in this space. And don’t just take it from us, there remains much too much work to be done with this transition to wait for anything.